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Monadelphous celebrates strong 2013, prepares for cyclical downturn

At its AGM, Monadelphous (ASX: MND) celebrated the significant growth and earnings it achieved in FY 2013. Total revenue was up about $700 million to $2.62 billion, and and net profit after tax (NPAT) was $156.3 million — the highest in the past 10 years.

In the address, the company acknowledged that leading into 2012 and FY 2013, the unprecedented volume of construction work from resources and energy developments in the execution phase was reflected in its yearly results.

Of its revenues, 38% are from the iron ore sector, followed by oil and gas at 26% and in third was coal at 23%. Other minerals and infrastructure were 7% and 6% respectively.

Within its view on Australian market conditions, it showed that resources may have peaked, and will have lower but stable levels of capital expenditure. For the next three to four years, oil and gas will take up the slack as offshore oil and gas production developments proceed. In addition, coal seam and shale gas projects are moving to the next levels of development, predominantly in Queensland, and that will entail more possible work.

Infrastructure should remain relatively stable over the next five years, and maintenance work for both resources and energy will continue to rise, possibly plateauing out in 2016 or 2017.

Monadelphous is well-diversified amongst industries, but the challenge will come when two of  three major contributing industries, iron ore and coal, begin to see less expansion. It is important for the company become involved in ongoing maintenance work as much as possible to offset any cutback in mining exploration or expansion.

Two other areas that offer opportunities are water infrastructure developments for mining and energy customers, and expanding internationally to service existing clients in new areas. Currently, only about 5% of total revenue comes from overseas operations.

Other companies servicing the mining and energy industries like WorleyParsons (ASX: WOR) and Leighton Holdings (ASX: LEI) had relatively good years in 2013, yet with more miners scaling back work and reducing staff, they will have to adjust themselves the market.

In related industry news, mining services company Emeco Holdings (ASX: EHL) released lower earnings guidance reports this week, with forecasted operating earnings before interest, tax, depreciation and amortisation at around $90 million to $105 million for FY 2014. In 2013, that figure was $157.6 million.

Engineering company Forge Group (ASX: FGE) is still in a trading halt as it assesses the underperformance of two energy-related projects, and how that will affect its earning guidance, which was scheduled for release this month. This is causing concern because the trading halt has continued since 4 November, 18 days ago.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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